Are Limited company Buy to Let Mortgages the way forward?

Thursday, September 22nd, 2016

Given some really competitive product pricing by lenders and the fact that rental calculations are for the most part more generous, buying property via a Limited company is now becoming an increasingly enticing prospect.

That many investors are now considering this route is due in part to the much heralded proposed tax changes. In response, lenders operating in this market are increasing support and fine tuning their processes to accommodate the increased demand for these Limited company buy to let mortgages.

This commitment is demonstrated in a number of areas including the product offering, with the average interest rate having dropped from around 4.1 per cent to around 3.7 per cent in the space of just 6 months. This change in part is due to many lenders no longer applying a pricing premium for Limited company buy to let mortgages.

Buy to Let Calculations are changing

Here at Caboodle Financial Services Limited, we see that the other area investors can benefit from is in the rental calculation itself. Many lenders offering mainstream residential buy to let mortgages (i.e. where a buy to let property is acquired and held by an individual) have changed the way they calculate affordability and have now moved to typically assessing minimum rental coverage at around 140-145 per cent based on a notional interest rate of 5.5 per cent. These changes are as a result of proposals by the Prudential Regulation Authority, the body which, since 2012 has been responsible for the regulation and supervision of around 1,700 banks, building societies, credit unions, insurers and major investment firms

By comparison, rental calculations for Limited company buy to let mortgages are still around the 125 per cent mark based on a charging rate at 5 per cent, which currently makes them appealing for investors wanting to leverage their assets to the maximum level as they will be able to borrow more given the significant difference in the two calculations.

There is still time to act

The tax changes referred to above are being phased in from April 2017 and will be fully in force by the beginning of the 2020/21 tax year. The main impact of the changes will mean that individual landlords will only be able to claim interest relief at the basic rate of tax, (not the higher rate as was the case previously), which will mean that some higher rate taxpayers may now see a significant change in their overall net position.

Consequently, many accountants and tax advisers are now recommending that one solution for some higher rate taxpayers is to hold their property portfolios in a Limited company, which will then set them outside of the personal tax regime and make them subject to Corporation tax instead, but as each case needs to be reviewed on its own merits, professional advice is crucial here.

Are you considering buy to let and need some impartial advice? Click HERE to contact Caboodle Finance, of Sutton Coldfield, Birmingham or alternatively just call 0121 308 9114 today and our friendly team will be more than happy to help you.